It’s all gone like clock-work. You’ve been pre-approved for a mortgage, found the right home and know exactly what the future looks like. Or do you? Hidden costs could drive up the cost of a real estate transaction for both the buyer and the seller. The solution is to know what you’re getting into before you sign on the dotted line.
There is a wealth of information on hidden costs available through realtors, lenders, publications and internet sites. Still many buyers and sellers just don’t get it. They should. First-time buyers, in particular, should be aware of costs that could add thousands of dollars to the price of their home. Following are just some of the costs you should consider as a:
Home appraisal costs. Your lender may want to establish an independent fair market value for your dream home and this could cost you up to $500.
Cost of a building inspection. No, a building inspection isn’t the same as an appraisal. The inspector will go through the property to identify mechanical or structural problems and provide you with a list of repairs and the estimated cost. The charge for this could be up to $500.
Decorating and renovating. It doesn’t matter how perfect your dream home is there will be expenses to make it truly yours. If you haven’t required the seller to do it, you may have to complete repairs recommended in the building inspection. Or it may be just decorating, such as paint and window coverings. This always mounts up faster than you may think.
HST. You’ll be paying 13% HST on many of the services involved in buying a house, such as commissions, lawyer’s fees and appraisals. You’ll also pay HST on a new home but not on the purchase of a re-sale home.
Land Transfer Tax. This varies provincially and is based on the price of the property. In Ontario, LTT ranges from .5% to more than 2%. Don’t forget, if buying in Toronto, you’ll also have the 3% City LTT to pay.
Lawyers’ fees. You’ll need a lawyer right from the beginning, as lenders require a lawyer to write and register the mortgage contract. You also may want a lawyer to review the purchase agreement. Legal costs will vary dramatically depending on the lawyer you select and the amount of work involved. Shop around.
Property taxes. These are based on the assessed value of your property and the mill rate set by the municipality. In the purchase agreement there will be an adjustment date, and that date establishes when the property taxes become your responsibility . Your lawyer can figure out whether you will pay back the seller or the seller owes you.
Utilities. Hooking up telephone, cable, high-speed, electricity, gas, etc. also may cost more than you anticipate, and there may well be security deposits up to $500 per utility.
Fees. As the seller you may incur escrow, title insurance, mortgage redemption and other related fees. These vary considerably according to your individual circumstances, so do your research before putting the house on the market.
Lawyers’ fees. Some sellers prefer to have a lawyer with them every step of the way, while others are happy to just have a final legal opinion on the purchase agreement. Depending on your comfort level, legal fees could be substantial.
Moving expenses and the cost of upgrading your new home.
Realtors’® fees. The seller usually pays the realtors’ commissions.
Renovations. Strategically done renos can increase the value of your property and perhaps more importantly improve the “showability” of your home. Experts suggest you pay the most attention to de-cluttering, painting (in neutrals), improving bathrooms and kitchens, and enhancing curb appeal. Hiring a stager may be a good decision as stagers can improve your home’s look without making major (expensive) changes.
Repairs. After the home inspection, you may find yourself with a list of repairs to complete before the buyer finalizes the agreement. Some Realtors® recommend their clients pay for a home inspection themselves prior to putting the house on the market. Not only do you know where you stand (and are able to make the repairs you believe are essential), but you also can hand the buyer the inspector’s report and head off the buyer’s own home inspection.
Rent payments. Many Realtors® recommend you sell your house before purchasing a new property; otherwise you may be stuck for some time with two mortgages. This has its own problems, as you may have to give buyers an early closing date and find yourself renting and storing furniture while looking for your own dream home.
Bottom line: Hidden costs will increase the cost of buying or selling. Real estate experts recommend that both buyers and sellers research the closing costs before they begin the process.
This information is brought to you by your Accredited Senior Agent, a specialist in the housing needs of older adults. Your ASA is an experienced real estate professional who has graduated from a special education program focusing on the needs of seniors.
By Barry Lebow